Question

Jobs Inc. has recently started the manufacturer of Tri-Robo, a three-wheeled robot that can scan a home for fires and gas leaks and then transmit this information to a smartphone. The cost structure to manufacture 21, 300 Tri-Robos is as follows.

Cost
Direct materials $1,086,300
Direct labor ($39 per robot) 830,700
Variable overhead ($5 per robot) 106,500
Allocated fixed overhead ($28 per robot) 600,000
Total $2,623,500
Jobs is approached by Tiench Inc, which offers to make Tri-Robo for $113 per unit of $2,406,900.
Following are independent.
Assume that $405,000 of the fixed overhead cost can be avoided. Enter negative amount.
Make Buy Net Income Increase (Decrease)
Direct materials $ $ $
Direct labor
Variable overhead
Fixed overhead
Purchased price
Totals $ $ $
Using incremental analysis, determine whether Jobs should accept this offer.
The offer _____
Assume that none of the fixed can be avoided. However, if the robots are purchased from Tienh Inc, Jobs can use the released productive resources to generate additional income f $375,000 Enter negative amount.
Make Buy Net Income Increase (Decrease)
Direct materials $ $ $
Direct labor
Variable overhead
Fixed overhead
Opportunity cost
Purchased price
Totals $ $ $
Based on the above assumptions, indicate whether the offer should be accepted or rejected?
The offer _____

Answer 1

Jobs Inc.

1. The offer should not be accepted.

2. The offer should be accepted.

Step-by-step explanation:

a) Data and Calculations:

Units of Tri-Robos to be manufactured = 21,300

Costs of manufacturing:

Direct materials $1,086,300

Direct labor ($39 per robot) 830,700

Variable overhead ($5 per robot) 106,500

Allocated fixed overhead ($28 per robot) 600,000

Total $2,623,500

Unit cost = $123.17 ($2,623,500/21,300)

Price from Tiench Inc per unit = $113

Total offer price = $2,406,900 ($113 * 21,300)

Make Buy Net Income Increase (Decrease)

Direct materials $1,086,300 $ $

Direct labor 830,700

Variable overhead 106,500

Fixed overhead 195,000

Purchased price 2,406,900

Totals $2,218,500 $2,406,900 $188,400 Decrease

Make Buy

Direct materials $1,086,300

Direct labor ($39 per robot) 830,700

Variable overhead ($5 per robot) 106,500

Allocated fixed overhead ($28 per robot) 600,000

Total $2,623,500 $2,406,900

Opportunity cost 375,000

Total $2,998,500 $2,406,900 $591,600